Tax Extension

Everyone's favorite day is looming in the horizon:  Tax Day, April 15.  This is the day most people dread and accountants long for.  It results in rushes at the post office to get those returns postmarked by April 15.

But what if you just can't get your return completed by the 15th?  This is actually quite common - you may be waiting for tax information from other taxable entities, you may have convoluted calculations that you want to be sure are computed correctly and therefore need more time, or you may have simply run out of time to file by the deadline.

Lucky for us, the IRS grants an automatic six-month extension for individual taxpayers.  By automatic it means you'll automatically be granted the extension if you file for it.  To file an extension you need to submit Form 4868 either electronically or by paper.  It is a simple form to fill out; you basically enter your name, address, estimated tax, total payments, and the remaining balance due.

What's the catch?

You still have to pay your taxes by April 15, otherwise you will be penalized.  Yep.  The remaining balance due that you report on Form 4868?  Gotta pay up when you submit your extension request.  If you neglect to pay the tax due you will incur a penalty and interest on the amount.

What if you pay your estimated tax liability with the extension but then later calculate the true amount owed and it is higher than what you paid?  You're most likely in the clear - the IRS will likely not charge you the failure-to-pay penalty if you paid at least 90% of your tax liability.  The total liability will be due by the extended deadline, however, so make sure you pay the difference by then.

For more information about penalties, interest, and extensions, the IRS website has several publications that provide guidelines.  This website also provides a list of pros and cons to consider when filing an extension.